Commentary
Every time there’s a banking crisis, some scratch their heads and wonder, how could this happen? Surely it must be greed, bad risk management, or a lack of regulation? More intervention should solve it. However, all those excuses miss the most critical point: The U.S. banking system was destroyed by design, and the big banks played along with it.
The fractional reserve system has always been a problem. Very few people understand how quickly the capital of a bank can dissolve. The entire balance sheet of a bank is a deck of cards, and the smallest decline in the profitable asset base—loans—or the volatile liabilities—deposits—can make the entire building collapse, because the problem has always been the taking of additional long-term risk using short-term liquid liabilities—deposits….